Construction Sector: Cash Retentions

Debate between Lord Offord of Garvel and Lord Aberdare

Monday 11th December 2023 Lords Chamber

[Lord Aberdare]

To ask His Majesty’s Government what progress they are making in determining how to end the practice of cash retentions in the construction sector, and whether they plan to meet the 2025 target date for achieving zero retentions proposed by the Build UK Roadmap and endorsed by the Construction Leadership Council in 2019.

[The Parliamentary Under-Secretary of State, Department for Business and Trade and Scotland Office (Lord Offord of Garvel) (Con)]

I thank the noble Lord for his Question. The Government will add a requirement for reporting on retention payments to the Reporting on Payment Practices and Performance Regulations 2017. Work also continues with the Construction Leadership Council to reduce defects in construction and end the abuse of retentions. This includes supporting a pilot project with the Get It Right Initiative to reduce defects, as well as collaboration with the bodies responsible for construction contractual documentation, to discourage the withholding of retentions.

[Lord Aberdare (CB)]

My Lords, the announcement made last month, which was mentioned by the Minister, is a small step forward but it is too little, too late, and it does not go nearly far enough to end the bane of retentions, which cause huge damage to numerous small construction firms, and indeed to the sector as a whole. What further steps are the Government considering? Let me suggest two possibilities. First, they could ensure that the undesirability of retentions is included in the Construction Playbook, which sets out key policies and guidance on how public works projects and programmes are assessed, procured and delivered, but, rather shockingly, makes no mention of retentions. Or, secondly, they could put an effective system of enforcement in place for the measures he has just described when they are eventually implemented. If the Minister does not like those two ideas, I have at least half a dozen more that I could suggest to him.

[Lord Offord of Garvel (Con)]

I thank the noble Lord for that contribution. The Government understand well that the practice of cash retention can create problems in the supply chain, due to late and non-payment. We are committed to improving payment practices, but we have to work with the construction industry in this. The prompt payment and cash flow review report was just published on 22 November, and a key measure includes extending and amending the Reporting on Payment Practices and Performance Regulations, basically to increase transparency in this vital area to allow large businesses to provide data to the smaller companies to see how retention payments are working. We have to work with the construction sector in this.

The Construction Leadership Council has identified some solutions to mitigate cash retention payments. Our long-term aim is to remove the need for retentions altogether and, as I said, we are supporting the Get It Right Initiative and Cranfield University to reduce the rate of defects within the buildings commissioned across the public and private sector. The aim is to establish a quality metric as a viable alternative to the withholding of cash retentions as a form of insurance against defects. There is a lot going on. We are working with the industry and a lot of consideration has been given to this matter, but, ultimately, the construction industry itself needs to come to a consensus on how to improve this area.